407 F. 2d 989 - Chemical Construction Corporation v. Continental Engineering Ltd Continental Engineering Ltd

This is a diversity case arising out of a multistate cost-plus-fixed-fee subcontract for the engineering and construction of a fertilizer handling and storage facility on the Arkansas-Louisiana Gas Company (ARKLA) site at Helena, Arkansas. Continental Engineering, Ltd. (Continental), an Alabama corporation and subcontractor, sued Chemical Construction Corporation (Chemico), a New York corporation and ARKLA's prime contractor, for a $540,000 equitable fee adjustment and for $400,000 in allegedly incurred but non-reimbursed costs. The trial court directed a verdict for Chemico on the fee adjustment issue (Count One) and submitted the 18 separate cost items (Count Two) to the jury, after reserving judgment pursuant to Fed.R.Civ.P. 50(a), with instructions that a special verdict be rendered as to each cost item. The jury returned verdicts in Continental's favor on 16 of 18 cost items. Judgment thereon was entered but later modified when the trial court granted Chemico judgment notwithstanding the verdict with respect to two of the cost items relating to overtime bonuses to exempt employees ($14,127) and to overhead on job shoppers ($31,149). Chemico's motion for judgment n.o.v. as to certain other cost items was denied.

Chemico appeals from the denial of its motion for judgment notwithstanding the verdict with respect to two cost items which pertain to sand ($66,108) and to shop detail drawings ($137,653). Continental cross-appeals from the judgment entered upon a directed verdict for Chemico on the equitable fee adjustment issue and from the judgment for Chemico notwithstanding the verdict on the two disputed overtime bonuses and job shopper overhead cost items. Without detailing the complex procedural history and factual context of this case, this Court's appellate review is limited to only five controverted issues: Did the district judge properly grant Chemico a directed verdict on the equitable fee adjustment issue; was the trial court correct in granting Chemico judgment notwithstanding the verdict on two disputed cost issues, namely, the overtime bonuses and job shopper overhead items; and in denying Chemico judgment notwithstanding the verdict on the other two cost issues relating to sand and shop detail drawings? We think so in all respects, and affirm the judgment.

On the equitable fee adjustment issue, the trial court directed a verdict for Chemico, denying any adjustment in Continental's favor. Continental did not seek relief on this issue by resort to the contract, which clearly provided for an equitable fee adjustment on the basis of written change orders whereby Chemico would acknowledge a material increase in the scope of the work (Article F). No written change orders had been made, and those which had been requested were denied by Chemico with the excuse that it was unable to secure similar relief from ARKLA. Consequently, Continental made a frontal assault on the written contract which had been executed 'on' and 'as of' February 2, 1966, and which contained an express merger clause.1 The subcontractor's theory was as follows: (1) The written contract is ambiguous as to what was its effective date; (2) therefore, parol evidence is admissible to show that the August 1965 subcontract negotiations were consummated in a final, oral contract (later to be 'memorialized' in writing);2 (3) this oral agreement firmly established the project scope; and (4) all subsequent scope changes instituted orally or in writing by Chemico should be a basis for predicating an equitable fee adjustment claim, notwithstanding the subsequent written contract provision requiring express written change orders. (Article F.)

The trial judge was not persuaded by Continental's theory, nor are we. The directed verdict for Chemico was correctly granted for several reasons. First, the written contract containing the express merger clause was clear, unambiguous, and subject to no more than one interpretation. See 3 Corbin, Contracts 554, pp. 222-223 (1960). Therefore, it need not be opened to judicial construction, even if giving effect to its literal terms will work a hardship on one party. See National Surety Corp. v. Western Fire & Indemnity Co., 5 Cir., 1963, 318 F.2d 379, 387.

'A provision of contract, which is clear and unambiguous and not subject to more than one interpretation, is not open to construction, even if giving effect to its literal terms will work a hardship on one of the parties. The rule has been applied to insurance contracts.'

See also Jacksonville Terminal Co. v. Railway Exp. Agency, Inc., 5 Cir., 1961, 296 F.2d 256, 261; Simpson Timber Co. v. Palmberg Const. Co., 9 Cir., 1967, 377 F.2d 380, 386; Jackson v. Sam Finley, Inc., 5 Cir., 1966, 366 F.2d 148, 155; Florida Canada Corp. v. Union Carbide & Carbon Corp., 6 Cir., 1960, 280 F.2d 193, 196, and cases cited therein. The fact that Continental vigorously objected to the original $233,000 fixed fee on more than one occasion before execution of the written contract and that the subcontractor attempted (but failed) to secure a contemporaneous oral agreement for a post-performance equitable adjustment from Chemico indicates that the subcontractor was in the weaker bargaining position. With the trial court we agree that Continental 'should have stopped right there and said we won't go one foot further until you give us a (written) change order.'

Moreover, the final, oral contract theory falls of its own weight, though such infirmities are not dispositive by virtue of the operative effect of the written contract. First, Continental made the August 1965 proposal as a joint-venturer with a Dallas subcontractor who ultimately refused to become a party to the written contract. Second, the proposal was in the nature of a counteroffer since Continental and the Dallas firm had declined to bid on the original invitation and since their joint proposal significantly expanded the original project scope. Third, Continental was never able to show clearly what its 'detailed proposal' actually encompassed as of the August meeting date. Fourth, Chemico Successfully rebutted the claim that the 'plywood' contract was the same contract finally executed when it indicated that at least one provision of that draft contract was deleted in the final written contract and a manufacturing costs formula (not even included in the 'Plywood' agreement) was inserted as a major provision of the contract. Perhaps most fatal to Continental's theory, though, is the express language of the written purchase order confirming the oral number provision which the subcontractor argued constituted conclusive evidence that a final oral agreement was reached at the August 1965 conference. A single quote therefrom clearly shows that the parties had only agreed to agree in writing at a later date after the subcontractor 'formally presented a guaranteed maximum estimate for the work as described within the documents referred to as Project Scope' which were to be 'submitted to Chemico for comment and/or approval.' The language states, inter alia:

'This Purchase Order is issued tentatively for the interim period preceding the signing of a contract for the design, engineering, procurement and construction of the materials handling system and storage buildings within the offsite portion of the ARKLA chemical complex at Helena, Arkansas.'

Because of the operative effect of the written contract and the patent infirmities in Continental's oral contract argument, we find it unnecessary to reach Continental's secondary theory that an oral construction contract later to be reduced to writing is valid in Louisiana. But compare Cox-Hardie Company v. Rabalais, La.App.1964, 162 So.2d 713, with Breaux Brothers Const. Co. v. Associated Contractors, 1954, 226 La. 720, 77 So.2d 17, 29. Cf. Roy O. Martin Lumber Co. v. Saint Denis Securities Co., Inc., 1954, 225 La. 51, 72 So.2d 257, 261; West v. Carbone, La.App.1963, 150 So.2d 37, 40. As a result, a conflict of laws issue is foreclosed since the Louisiana oral contract law problem is not reached.

Likewise, we conclude that the trial court correctly employed the parol evidence rule.3 While Continental may have injured itself economically when it capitulated on its demand that a pre-execution fee adjustment be made, we cannot now create for the subcontractor, by construction of the contract, a more beneficial compensation scheme than he was able to secure in an arm's-length, even if no-holds-barred, negotiation. See National Surety Corp. v. Western Fire & Indemnity Co., 5 Cir., 1963, 318 F.2d 379, 387. The contract was undeniably effective 'as of' February 1966, all prior negotiations were integrated therein, no written change orders were executed by Chemico in accord therewith, and the contract must be enforced as literally written.

There is no need for extensive elaboration on the remaining four issues before us for review since we fully agree with the trial judge's rationale and judgment. All four issues involved disputed cost items. The contract cost reimbursement provisions (Article B-1) were subcategorized by location of performance: Field Costs, Home Office Costs, and Manufacturing Costs. As to two of the cost items, overtime bonuses and job shopper overhead, the trial judge concluded that he 'should have directed a verdict' for Chemico and, therefore, granted the prime contractor's motion for judgment notwithstanding the verdicts thereon. See Cedar Crest Hats, Inc. v. United Hatters, Cap & Mil. Wkrs. I.U., 5 Cir., 1966, 362 F.2d 322, 327; Fed.R.Civ.P. 50(b). With respect to a third controverted cost item, 'detailing' or partial drawings reproduced by draftsmen from master drawings for manufacturing craftsmen, and a fourth item, cost of sand, the trial judge denied the motion for judgment notwithstanding the verdict because the evidence was conflicting as to whether such costs were properly allocable to the home office or the manufacturing reimbursement formula. See 3 Corbin, Contracts 554, pp. 226-227 (1960).

We, therefore, adopt as our own the decision of the trial judge, rendered on the motion for judgment n.o.v. and set forth in detail in the margin of this opinion, as to the aforementioned cost issues.4

Affirmed.